Solar PV projects in the U.K. have grown significantly via large-scale projects mainly supported by the Renewables Obligation (RO) scheme, and smaller sized projects, supported by Feed-in Tariffs (FIT). But given that the RO scheme is now phased out and the government refuses to open the new, auction-style scheme for renewable energies to solar, and also that FITs have been drastically cut, the PV sector is looking for new ways to install additional capacity. Can community projects offer a viable path to new PV installation growth?
A seminar at the recent Solar and Storage show in Birmingham offered a valuable update on the U.K.’s community energy sector.
Overview of UK’s community energy
“Many people think of community energy as small, stand-alone projects such as PV on a school or a community building,” Emma Bridge of Community Energy England, a membership body that supports organizations that want to see the community sector grow, told the Solar and Storage show. “And although that is an important part of community energy, the projects and activities we are involved in has diversified greatly over past couple of years.”
Bridge referred to a few impressive community projects such as a 14.7 MW solar PV farm near Stratford-upon-Avon in Warwickshire; a 636 KW rooftop PV array on the roof of a tyre factory in Milton Keynes, and a project of 321 council-owned homes with PV and batteries assets.
According to the State of the Community Energy Sector report launched by Community Energy England earlier this year there is a total capacity of 121 MW of community energy projects installed in England, Wales and Northern Ireland. This capacity is dispersed among 269 projects, while if you add Scotland’s community energy projects then the U.K.’s capacity stemming from community projects rises to 188 MW.
In terms of the 121 MW of projects’ economic effectiveness, the same report finds that community energy organizations leveraged over £190 million in project finance from £1.9 million of project development funding.
“There are many motivations for undertaking community energy, but as a means to an end, economic benefits from a community energy project are the most straightforward means of supporting development in the local community,” commented Bridge. In other words, communities like to develop their own energy projects as a means to achieve lower electricity prices and reduce fuel poverty. Earlier in her presentation, Bridge had also defined community energy as “people owning, controlling and benefiting from their energy.”
However, not everything is rosy. “The last couple of years have been tough for the sector,” said Bridge, referring to the removal of support mechanisms – both generation subsidies and tax incentives – and an overall lack of political support and energy strategy. Bridge is aware of 44 stalled community projects due to capital finance issues.
Opportunities and challenges
Speaking at the same seminar, Matthew Clayton, managing director of Thrive Renewables, a renewable energy investment company based in Bristol, told the audience that in the previous era of developing projects under the RO scheme, about 50% of revenue was underwritten by the government, while this sometimes rose to 70% when the project was developed under the FIT scheme. Consequently, 10 to 30% of funding came from the communities alone, while the rest came via commercial banks.
Today though, added Clayton, community energy projects need to be subsidy free. Clayton’s view is that the subsidy-free community energy projects in the U.K., up to 5 MW each, are between 18 to 24 months away from being able to access funding.
However, the case is totally different, Clayton noted, if the project does not sell the generated power to the grid and instead relies on a direct power purchase agreement (PPA) contract. In the second case, even small projects of 5 MW each or less can be viable with the current technology, project development and financing costs.
It emerges that innovative financing instruments will be key to developing new community energy projects. “The community energy sector,” said Bridge, “is very effective at leveraging funding. Community shares offer a great model whereby communities invest in local projects for a small return and have an active stake/say in the project, which can increase feelings of ownership and help to drive behavior change. There are also other alternative mechanisms such as community bonds and even the first-ever community energy ISA launched in June.”
From his side, Clayton spoke of the so-called ‘community bridge’ collaborative model that Thrive Renewables implements, facilitating the transfer of projects’ commercial ownership to local communities. Thrive Renewables did this with the Mean Moor Wind Farm (3 x 2.3 MW turbines) in Cumbria, Northern England in the summer and are now working on a similar solar PV project.
Despite all the troubles, “I do feel that the outlook for [UK] community energy is bright,” concluded Bright. “2/3 of [our] groups have future plans in place to aspire to do further projects and I think this will increase over the next couple of years as groups start to see others developing projects again.”